iAd - Apple's objective
Apple's stated reason for launching iAd is to help developers monetize their applications. Since most apps are either free of very low priced, developers are turning more and more to advertising to generate a return. As Apple CEO Steve Jobs said in his presentation, iAd is to "help developers make money through advertising so they can keep their free apps free."
iAd will focus solely on in-app advertising, not mobile search or mobile browsing. Apple sees consumers spending a large amount of time using apps, and feels this is an area where they can best improve the advertising experience.
Finally, iAd is designed to enable mobile advertising that will have the personal interactivity of typical online ads, but will also be able to generate the emotional impact of traditional TV advertising. According to Apple, up to now brands have had to make a choice between interactivity and emotion, but iAd is targeted to deliver both.
iAds - how it works
All of the details are still not available yet, as Apple has not released the SDK that will allow external parties to develop iAd ads. However, based on the launch material and the demos, we can see quite a bit of what iAd will be like.
Basically, developers will use iAd to insert small banner ads - static or animated - into their mobile applications. When a user clicks on the banner, it will launch what is in essence another application which is the advertisement. And since they are basically apps, the advertisements can provide very rich and engaging experiences for customers.
Here are some of the key features of iAd:
iAd will keep the customer "in the app". In other words, after clicking on a banner and seeing the ad, they will find it very easy to go straight back to the app they were in, and at exactly the same place. So a consumer does not risk getting lost by clicking on an ad. Apple feels that this will be make customers much more relaxed about clicking on ads, and therefore will generate higher CTR's.
iAd is built-into the iPhone OS, so it is very easy for developers to implement. Apple claims in many cases it will take just a few hours.
the ads themselves can be very interactive, with lots of streaming video. The ads are all based on HTML5, the new internet language that supports rich internet applications (rather than, for example, Adobe Flash).
the iAd will be able to take good advantage of specific phone features to make a richer, more engaging user experience, e.g. location aware for showing store locations, using the "shake" interface, and the ability to sell and set new iPhone wallpapers from within the app.
Another very interesting feature that Apple demonstrated is the ability for consumers to buy additional products directly from within the app without having to visit the iTunes/App Store.
It is well known that making purchasing easier and reducing the number of steps required can have a large impact on conversion rates, so this feature should be very good at encouraging impulse purchases directly from within the app.
iAd - commercial aspects
Apple has also provided some information on the business side. Apple has said that they will sell and host all the ads, and they will split the revenue from the advertising on a 60/40 basis (the developer gets 60%, Apple gets 40%).
Although the pricing is not officially announced, reports from the Wall Street Journal and Moconews indicate that Apple plan to charge on both a CPM and a CPA basis: 1 cent per impression ($10 CPM) plus $2 per click. Most ad networks charge one of the other, but Apple plans to charge both, making this potentially a very expensive channel. And Apple is said to be implementing a $1million minimum annual spend limit.
iAd - what it means
While clearly it is too early to understand fully what iAds will mean to the mobile marketplace, a few things already seem clear. Let's see how it might impact each of the key parties involved:
>> For customers: From a customer perspective, iAds should be great. It will enable some very rich, compelling mobile advertising, and let customers engage more deeply with their favorite brands. And with the direct links to mobile commerce, it could make for a really good overall customer experience.
>> For brands/advertisers: The story is not as clear for brands. On the plus side, iAd will support very engaging advertisements and should lead to a great, interactive customer experience. Plus, the iPhone owner demographic is likely to be a very desirable target for many brands.
On the other hand are the issues of reach and cost. Although Apple doesn't report sales figures, in April 2010 Steve Jobs stated that they had sold about 75 million iPhone OS devices. As the iPhone continues to sell well and with the addition of the iPad, we can expect that sometime this year the total will pass 100 million. Although this is a large number, it is spread across the world, and once you take into account the reduction from targeting by interest or location, it will actually represent a limited market.
Regarding cost, it is likely to be much higher than other mobile ad channels. Using the figures from above, a 1% CTR would give a $30 average CPM, and a 3% CTR would give a $70 average CPM. This may be worth it for some initial advertisers who will also benefit from the general PR that will inevitably will surround initial iAd campaigns, but in the long term this may be a barrier for many brands.
>> For developers/publishers: Apple seems to have spent a lot of effort to make things very easy for developers. Especially small and medium sized developers might be very happy to simply implement a few ad tags and receive 60% of the ad sales.
On the other hand, a large publisher - for example a global news brand releasing an app - might not be too happy with the idea of giving up 40% of the ad revenue earned on their site. And the requirement that all the ads will be sold by an external party - namely Apple - may limit the publisher's options to sell special cross media promotional opportunities.
In summary, it is clear that Apple has once again taken a big step forward. By managing to control both the hardware, the software, and some parts of the service offering, Apple can offer a user experience that is differentiated from everyone else.
In particular, the iPhone OS 4 will definitely enrich the user experience and keep the iPhone out in front of the competition for some time. Regarding iAd, it looks as though consumers as well as many developers will benefit, but what is not clear yet is how well iAd will fit the needs of major brands and publishers from a business perspective.
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